MGM Scores a Last-Second Save

The casino's CityCenter project has managed to avert disaster.

Bottom of the ninth, bases loaded, two outs, the count is full, MGM Mirage(NYSE:MGM) steps to the plate and -- homerun! Yesterday, MGM announced that it had reached a number of agreements that should allow it to complete its massive CityCenter project.

The primary news is that the lending consortium led by Bank of America(NYSE:BAC) agreed to release a $1.8 billion loan to MGM and its partner Dubai World to allow continued financing of the construction. The lending group also agreed to amend existing credit agreements to give the company some more financial flexibility -- at least for the near term.

In addition, Dubai World, which was more than a little ticked off about cost overruns at CityCenter and MGM's management of the project, had filed a lawsuit against MGM and refused to pay its part of the most recent interest payment. As part of the news yesterday, Dubai World dropped its lawsuit and hopped back on the same page as MGM, thanks to MGM's agreement to pay out-of-pocket for any future cost overruns, and a new structure that allows CityCenter to avoid doom if MGM files for bankruptcy.

This largess came at a cost to MGM, though. Not only will it now be on the hook for cost overruns, but it also faces a heftier interest rate on its debt. Worse yet, it was forced to put up some of its assets -- including vacant land on the Las Vegas Strip, Circus Circus Las Vegas, Gold Strike Tunica, and MGM Grand Detroit -- to secure the loans.

As I write this, MGM's stock is up nearly 40%, so there's no question about how investors feel about the company's new deal. But I'm not sure that what's good for this goose is good for the other geese in Vegas. Revenue on The Strip has been slumping, and the massive City Center project -- which will bring roughly 4,800 new hotel rooms, a huge new casino, and a giant shopping and entertainment center -- will provide major competition for the casinos owned by Wynn(NASDAQ:WYNN) and Las Vegas Sands(NYSE:LVS).

Apart from the CityCenter project specifically, the news also suggests that lenders would rather work with debt-laden casinos than against them. But don't assume that this means everything is hunky-dory in casinoland. Consumers are still strapped, and most gaming companies are still weighted down with debt, so these companies aren't finished tightrope-walking quite yet.